Inovalon Holdings Inc. has agreed to acquire ABILITY Network Inc. for aggregate consideration of $1.2 billion in cash and restricted stock. ABILITY is a cloud-based software-as-a-service technology company focused on the healthcare industry.
Inovalon will pay $1.1 billion in cash and $100 million in restricted Inovalon stock, equating to an acquisition price of 16.6x ABILITY's last 12 months Dec. 31, 2017, adjusted EBITDA of $72.1 million.
Inovalon will finance the transaction through the 7.6 million shares of restricted equity, cash on hand, and borrowings from a new $980 million term loan for which a commitment has been obtained, and which will also be used to pay off and replace the company's existing credit facility debt.
The transaction is expected to close in April, subject to customary closing conditions and regulatory approvals, and is expected to be accretive to Inovalon's non-GAAP net income per share in 2018.
Morgan Stanley Senior Funding Inc. is providing the financing commitment for the acquisition.
Upon closing of the transaction, Jamison Rice, executive vice president and CFO of ABILITY, will serve as general manager and divisional president of ABILITY and will join Inovalon's executive leadership team. Mark Pulido, chairman and CEO of ABILITY, is expected to join the board and serve as an adviser on the integration of ABILITY with Inovalon.
Senior management of ABILITY have entered into employment agreements with Inovalon, which go into effect pending the closing of the transaction. The 7.6 million shares of restricted Inovalon equity will be held predominantly by Summit Partners and Bain Capital Ventures, as well as by ABILITY's senior management, and will remain restricted from sale or transfer.
Also, in conjunction with the transaction, Inovalon updated its 2018 guidance.
Now, the company expects revenues of $568 million to $593 million, compared to its previous guidance of $462 million to $482 million. The company also expects to report net loss of $5 million to net income of $3 million, compared to net income of $12 million to $16 million. Inovalon projects non-GAAP EPS of 36 cents to 42 cents, versus the previously estimated 31 cents to 35 cents. It expects to report a GAAP loss of 3 cents per share to income of 2 cents per share, compared to previous GAAP net income per share guidance of 9 cents to 11 cents.
The S&P Capital IQ consensus normalized EPS estimate for 2018 is 34 cents.
Inovalon will pay a termination fee of $50.0 million if the deal is terminated under certain circumstances.
